Wholesale is one of the global economic sectors that is showing signs of early recovery from the pandemic.
According to Research and Markets, the 2021 value of the industry is just over $49 billion USD ($4 billion more than in 2020) with a compound annual growth rate of 9.7%.
This growth comes in the context of recovery from the pandemic, now that business activity is starting to pick up and health regulations are easing.
Research and Markets currently estimates that the market size will reach $64 billion USD by 2025 with a compound annual growth rate of 7%.
Considering that the future of the sector is promising, we set ourselves the task of gathering valuable information about the different models that exist within wholesale, how they work, what aspects you should consider when buying and selling products, as well as a list of things to do before getting down to work.
To understand what wholesale is and how it works, it is worth noting that there are three different meanings, each with value in its own context. Generally speaking, wholesale means the sale of products in bulk at low cost to stores and businesses, rather than directly to consumers.
In addition to this generic definition, one of the meanings of wholesale is the acquisition of all or part of a product directly from the manufacturer.
Secondly, there is the more common definition of wholesale: B2B (or business-to-business) sales, in which the wholesaler acts as an intermediary between the manufacturer and the retailer. The way these intermediaries (also known as brokers) operate is by moving merchandise from the manufacturer to the retailer.
For instance, suppose the wholesaler in question specializes in animal proteins. The way in which his business can become prosperous is by supplying several retailers; to do this, he gets a preferential price directly from the farmers for buying large quantities of product, which he then resells at a markup to his network of retailers.
In this case, the wholesaler's profit comes from the low cost of buying products in volume, as well as not relying on logistics management, i.e., ensuring that third parties store and distribute the product.
Now, at this point, you are probably asking yourself: where does Costco —perhaps the best-known wholesaler in the West— fit into these definitions? Well, the third definition is that of a wholesaler that sells products directly from the manufacturer to individual consumers.
The particularity of the DTC (Direct To Consumer) wholesaler business model is that their distribution chains are usually short, so they can offer a wide range of products, from fresh produce and household appliances to electronics and clothing. DTC wholesalers have their own stores, warehouses ( or, like Costco, use their warehouse as a point of sale), and website.
In short, wholesaling consists of a variety of business models that are based on the principle that the retailer offers a variety of products, sells them in volume, and makes a profit by dividing large quantities into smaller purchases.
Now that we are clearer about the different models involved in the wholesale sector, it is worth understanding in detail how they work.
Generally, it is a series of structured steps by which the different wholesale models source products, distribute them, and generate profits.
1. The raw material supplier sells its product to the manufacturer. By manufacturer, we mean a company that uses raw materials to partially or totally manufacture a product.
2. The manufacturer sells a high volume of its product to the wholesaler. The wholesaler may be a DTC or a broker, but, in any case, he will pay for a product that he will sell later.
3. The middleman sells the products wholesale to another manufacturer, to the consumer, business, or online. This step depends entirely on the wholesale model in question.
4. Final sale. If the wholesaler is a middleman, he will arrange for the merchandise to reach a retailer, who will then sell it at a higher price to the individual consumer. If it is a DTC, the final recipient is the individual consumer, who obtains an advantage similar to that of the wholesaler: by purchasing in volume rather than at retail, he obtains a better price.
Let's now look at how to get the right product acquisition and pricing right for the customer, regardless of size.
One of the hallmarks we have observed so far has to do with where the margins come from in each model and the advantages it offers to the consumer or retailer. For this, there are two fundamental instances: how you get the product and at what price you sell it.
While each company has its specific factors that lead it to offer a certain price, some of those that we can identify as constants throughout the industry are as follows.
We know that wholesale is a highly competitive industry involving giant corporations with a huge market share.
However, the opportunities for growth are there, and at Tribal we are confident that our solutions can help any wholesale company differentiate itself from its competition.
Tell us how we can help you and do better business with Tribal.